It's great to talk in terms of indices and devaluations and of "breaking the bank of England". The lives affected are not even spared an afterthought.
If you were a British factory worker, it might have saved your job because British exports became more competitive.
If you were a middle class office worker, it probably made life more inconvenient because imported goods became more expensive, and that Spanish vacation you had been planning might now be out of reach.
If you were a member of the upper class, your wealth was probably already well hedged against GBP risk by using offshore currency accounts, foreign stock investments, etc.
(How well that works is questionable; my completely amateur impression is that this view would force us to legalize insider trading while declaring HFT completely useless, for example.)
The bit about belief above is why insider trading is illegal. If people can't trust the information they have, and at least importantly that they have fair access to accurate information, then they won't have faith in markets and won't put down their money. Belief implies trust.
Example?
Please do ! The amount of resources invested in making HFT possible and profitable is no where close to being justified by the benefits it brings to society as a whole.
Making financial information move in days instead of week ? Sure !. In hours instead of days ? Yep !. In minutes instead of hours ? Why Not !. In seconds instead of minutes ? Mmmh yeah, I guess. In milliseconds instead of seconds ? Stop it. Opening a road to put high quality cables and hiring some of the most clever folks on the planet to cut half a milisec on a buy/sell algo ? Fuck you.
In terms of resources, Virtu is publicly traded and has a market cap of 6.3bn, Citadel was recently valued at 22bn, the total sector is maybe 100bn. Meanwhile our society ascribes about 260bn of value to Coca Cola alone.
[1] https://www.ft.com/content/ff8c6486-cb37-11e3-ba95-00144feab...
Payment for order flow is an example of the incentives of retail traders, retail brokers and HFT market makers aligning. The market makers are able (and obligated) to improve prices because they have paid to receive flow they are almost certain is not toxic. Meanwhile they charge the likes of hedge funds higher prices as they can't guarantee the reasoning behind their trades (i.e. they may be about to have their faces ripped off).
The HFT firm takes their (tightened) fee for making a market, kicks some back to the retail broker, and because the broker earns money that way, they offer commission-free trading to the retail trader.
It's exactly that.
Is a hopelessly bad book. It's a thinly disguised advertisement for IEX.
> front-run
I do not think it means what you think it means.
Dark pools reduce volatility, it’s just liquidity outside of the normal order book. Regular people don’t need dark pools because they aren’t slinging $500M block trades. Furthermore, trades can happen off-exchange without dark pools.
It sounds like you aren’t even an amateur, let alone an expert, no offense.
I know what those words mean individually. But put together like that they make no sense.
Anyone doing fiber is doing the wrong technology, if they want to minimize total end-to-end latency.
Speculators play a vital role in stabilizing the price of a commodity over time. All other forms of arbitrage are meaningless besides the biggest one of them all: temporal arbitrage. Buy low sell high. And with it, sell high buy low.
Government employees, for instance for Codelco, Chile's state-owned mining corporation, value speculators because those speculations are the best predictions of the future. Suddenly you can make guarantees to your stakeholders, and sell futures, and plan, feed the prediction into your other math.
Also I'm not sure HFT is totally useless. If you set a minimum latency in the market and forbade anybody go around that you would get cheaters, and less integrity, and roll back trades. Instead, with HFT, the only challenge of the fastest is to really be the fastest. They gotta win. Further, at a societal level, I divine there are harmful macro artifacts that happen at large multiples of HFT's granularity. So when the latency was milliseconds, artifacts happened in years, in microseconds, they happened in days.
If there were zero external costs to having a minimum-latency market, no big deal.
But we're still short of that. So there's a lot of money and brainpower being thrown into marginal decreases in market latency. Do we want so many of our best engineers chasing HFT performance?
It also creates a new ecosystem of arbitrage-- the guy with 20ms ping can take advantage of price differences the guy with 40ms can't-- which isn't necessarily producing real value.
This also assumes that the goal of absolute price discovery is itself meritorious. Maybe we're better off not being able to correctly value assets with infinite precision, because it tends to encourage the mindset of chopping up businesses for parts.
I'm a fan of the old-line conglomerate model. By bundling so many diverse assets, they inherently block price discovery, which creates openings where risk hedges and long term plays can survive and pay out. But investors hate being unable to pull those components out of the stock price.
Like I came up with a sorting algorithm I thought HFT--just some single monopolistic HFT company--would love, like die for. And I kept it so secret, did so much so nobody could hack it under any circumstances, never put it in an email, nothing, and? and? I sent it to over 40 FAANG and HFT equivalents and never heard back.
They really don't care about time, like really in real life. After the fact, yeah. Like when you're explaining to them why they lost money I guess. Not beforehand, when they could make money.
You're projecting about how competitive it actually is. Maybe if I actually split the eyelids first, then it would be competitive, but without that it is it is about as competitive as auctions for the best uranium mineral rights in the 1920's. Nobody gives a shit!
I ask because the decision to short the pound was a coordinated attack among many powerful financial institutions. There is a reason collusion in other economic areas is illegal, precisely because it allows a "mispricing" to occur compared to what would happen if their were arms-length, fair competition.
Again, I have no idea if this is a valid criticism of Soros' trade, but the part of the article about him convincing other investors to go along with trade reminded me in a way of the agreement of SV companies not to poach each other's talent, which HN loves to decry as illegal collusion to depress wages.
The "insight" that Soros and others like him had was when would this happen. It's been known to be unstable for years, it was known to break eventually (unless rates go up, by a lot), the only question was when.
Also, this outcome was what "the people wanted". As I wrote above, there was not enough buy-in to jack up the rates and save the currency at the expense of jobs, so the opposite happened, jobs were saved at the expense of the currency. Low currency isn't necessarily bad - it's good for some people and bad for other people. In fact these days countries routinely accuse other countries of suppressing the value of their currency, to facilitate a desirable trade balance (China vs US, as an example; remember Trump's tariffs?).
Didn't this prove beneficial to the UK in the long run?
The Guardian speculated in 2013 (<http://www.theguardian.com/business/economics-blog/2013/jun/...>) that if Britain had joined the Euro:
* The mid-2000s British housing bubble, and its collapse in 2007, would have been even bigger.
* Britain would have had to ask the IMF, ECB, and EU for loans.
* The Tories would in 2010 have promised a referendum to leave the Euro and won a majority. Labour would have won fewer than 100 seats, and UKIP would have "made spectacular gains".
* The anti-Euro side would have won the referendum, and the currency would have collapsed.
* "after a deep and painful recession economic recovery began".
* "Britain would have destroyed the euro on departure, and would now be on the point of leaving the EU altogether. The idea that Farage might be the next prime minister would be quite credible."
And the UK not being part of the ERM or Eurozone in no way disadvantaged London from becoming the continent's financial capital during the 1990s and later.
It's similar to the hard currency question that sprung up as we (all countries really) detached from gold. It's still not really settled, cryptocurrency being the latest reincarnation.
It's basic game theory, understanding adversarial finance, and applying risk management practices at the sovereign state (central bank) level.
It does seem strange today to bet somewhere in the neighborhood of $7 ~ $8 billions, to only realize a capital gain of ~$1 billion, but it's actually a really impressive ~14% return.
The issue I suppose is where taking that adversarial position, and then being outspoken about the topic, in essence a variation of pump'n'dump for short sellers... proclaim the doom of the British sterling, and the doom becomes real via market awareness.... or, is "market awareness" really just market manipulation?
When economies do not form an optimal currency area, tying currencies together with fixed rate creates all kinds of problems. Having floating exchange rate where central bank only "leans" to reduce volatility is usually the best course of action.
Eurozone is constantly battling against internal imbalances. Moving towards common fiscal policy is one way to fix them.
A nation was pursuing an economic policy towards harmonising their economy with that of another - a very nuanced process. Like two ships lining up so that one could supply the other.
That it makes an economy possibly more vulnerable to external issues (like a giant wave) is true, but it's a necessary condition that ostensibly has future benefits of economic alignment (i.e. ships being resupplied worth some risk).
Soros is a thief, a pirate, like any other - he came a long and created enormous risk, extracted billions into his fat pocket which would otherwise be in public coffers, and didn't create a dime in value for anyone, it's a zero sum game in which he ran off with riches learning everyone else poorer. It's cockroach capitalism of the worst kind.
Such a simple, beautiful and powerful sentence. For some reason I instinctually read it in Morgan Freeman’s voice.
Look at it from a software perspective: there was a huge vulnerability possible. If it hadn't been exploited by this person, someone else would have.
It was the Bank of England fault for not patching the exploit and creating the vulnerability.
See the problem? There's a reason it's illegal to exploit vulnerabilities in software. It's even illegal to exploit them in humans (mostly). It's called fraud.
But that isn't a good comparison for this case as what he did was not illegal. Unlike hitting people with steel pipes.
Our pipe-wielding example will just find another victim without a helmet. You can always find something a victim could have done differently, the only common thread is the perpetrator.
Also legality isn't a proxy for morality. Slavery was illegal. Some societies allowed cannibalism. What Soros did had a human cost and the fact someone else might have done the same financial alchemy had he not doesn't excuse it.
As for the pipe and helmet example. The laws and ways of upholding them are the metaphorical helmet that we put on to protect ourselves against pipe wielders.
The perpetrator will do what it wants to do, we can protect ourselves with laws, law enforcement, education or physical armour. Or do you expect the pipe wielder to stop because they were told what they are doing is bad or amoral?
You can marvel at the technical ingenuity of a heist like this but the ethics are dubious. The strongest counter is that the Bank of England wasn’t paying attention but that’s mildly victim claiming just like it would be if a company fell prey to a novel 0-day software exploit.
Do you let your counterparty know that you are willing to pay or sell at a price that is more beneficial to them?
- George Soros and all the funds and banks that participated in this large-scale attack were then able to repay the loans they had taken out in sterling, but with a devalued pound against the US dollar -
He was just the "ring leader", as it were. To date, no one had been able to coalesce all the necessary players into a single room and get them on the same page before in order to pull off such a thing. He was a proverbial shepherd corralling a bag of cats in order to make this scheme work.
Callous and greedy, sure. Intelligent and legal all the same. Blame the law makers for this one if you don't like the outcome. Their shortsightedness and allowances of quick, speculative, money-making bubbles to prop up fraudulent banking systems had a lot to do with this.
Lots of society still relies on people behaing well overall with the few outliers being ostracized or outlawed when they don't.
Not true. Unrealistic pegs paired with reams of floating-rate debt always break. See the Asian and Russian Financial Crises [1][2].
We discuss those as financial crises, not a man breaking a central bank, because they (a) don’t have a narratively-convenient antagonist and (b) aren’t Western central banks.
[1] https://www.britannica.com/event/Asian-financial-crisis
[2] https://en.m.wikipedia.org/wiki/1998_Russian_financial_crisi...
I’ve only ever heard this line of reasoning used to justify something unethical.
And in the case of software, we don’t admire the black-hat hackers that take advantage of exploits, do we? In fact, in that case it’s not even legal…
That doesn't mean it's not true. Soros's actions ending the peg helped the british people, whose government was throwing away billions of pounds trying to sustain the unsustainable peg.
I also think that when people characterize moves like this as ‘brilliant’ it does a disservice to the word. I think many folks, if they tuned their attention to opportunities like this, had the big name firms in their Rolodex, and had questionable ethics, could have made this move. Maybe I’m missing it, but this seems like a pretty straightforward way to take advantage of the system.